An appropriate financial perspective for a balanced scorecard

Abstract:

The balanced scorecard has proved itself as a valuable strategic tool in
measuring not only the financial performance, but also the customer
focus, internal business processes and learning and growth of a
company. To date, very little has been done to incorporate new
breakthroughs in financial management in the financial perspective of
the balanced scorecard. In this study, new trends in financial management
research are recognised in suggesting a ‘balanced financial
scorecard’ comprising only five selected measures of financial performance.
The statistical technique of principal component analysis is used
to test the ability of these five measures to predict the market value
added (MVA) of a company, compared to the predictive power of a range
of accounting ratios. The results show that over the long term, the five
suggested measures out-perform traditional accounting ratios, thus
lending support to the contention that the five suggested measures
better represent the drivers of shareholder value than do the traditional
accounting ratios. The search for a balanced financial perspective is an
ongoing process, but the suggested measures could make a constructive
contribution in taking this process forward.